- A 69 Eagle Creek Resources Inc Is Preparing Its Analysis Of Capital Projects For The Next Capital Budgeting Cycle As 1 (62.6 KiB) Viewed 27 times
the Weight of equity or weight of debt. How do I do that? Also is
there anything else I've got wrong?
a 69 Eagle Creek Resources, Inc. is preparing its analysis of capital projects for the next capital budgeting cycle. As part of the preparation. Eagle Creek needs to estimate it's cost of capital. Eagle Creek has a market to book 70 ratio of 1.2. a 50% debt ratio, a 40% dividend payout ratio and a 35% marginal tax rate. Eagle Creek has no preferred stock. The company's most recent earnings per share were $3.50. Eagle Creek expects to earn a net 71 income next year of $8.2 million. Eagle Creek has a bond issue outstanding that has an 9.6% coupon rate, a $1,000 face value, and 14 years remaining until maturity. The bonds currently sell for $968.42 each. New debt 72 issued would have a 20-year maturity and would be privately placed thus incurring no flotation cost. The company's stock is currently quoted at a price of $32.00 per share. New stock issued would incur a 10% flotation 73 charge. Eagle Creek uses the dividend growth model (DCF) to estimate the cost of equity capital and assumes that future growth will be constant. Calculate the following for Eagle Creek Resources: 74 75 a. Before tax cost of debt? 10.03% n 76 35% 3.50 32.00 40% WACC Internal WACC External Breakpoint 11.12% 11.48% 5,857,143 77 b. After tax cost of debt? 6.52% $ $ 78 r归母心形阳四ws 88w888 Coup R Par 1/R 1 PV PMT 14 9.6% 1,000 10.03% (968.42) 96 1,000 79 C. Cost of internal equity (retained earnings)? 11.22% 968.42 Marginal Tax Rate Earnings Per Share $ Stock Price $ Div. Pay Ratio Current Bond Sell $ Current Dividend $ Flotation Charge Net Price $ Weight of Debt Book Ratio Weight of Equity Expected NI $ 80 $ $ $ $ 81 d. Cost of external equity (new common stock 11.74% FV 82 83 e. WACC using internal equity? 11.12% 1.40 10% 28.80 50% 1.2 70% 8,200,000 84 ATCOF COIE Exp Div RE 85 f. WACC using external equity? 11.48% $ 6.52% 6.56% 1.49188 11.22% 11.74% 86 Break point for internal equity? $ 5,857,143 COEE 87 g 88